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Business lending slumps but SME figures raise hopes

LENDING to UK businesses continued to fall in February, dropping by a further net £750 million, Bank of England figures have shown.

But there was a £159m net rise in lending to small and medium-sized enterprises, defined as those with a turnover of less than £25m on their main business account. This net movement takes into account repayments, and includes changes in overdrafts.

Lending to large ­businesses fell by a net £909m in February.

The net £750m fall in overall lending to non-financial businesses in February was the fifth straight monthly drop. However, the rate of decline fell, with respective net falls of £4.43 billion, £1.66bn, and £891m having been recorded in November, December and January.

Good availability of affordable loans is viewed as crucial to the development of a less unbalanced recovery in the UK. Levels of business investment have proved extremely disappointing in recent years.

There have been signs of a recovery in business investment recently, but this improvement is at a very early stage.

Howard Archer, chief UK economist at consultancy IHS Global Insight, viewed the latest lending figures as disappointing.

But he saw some possible reasons for optimism.

Mr Archer said: "Net ­lending to non-financial companies disappointingly continued to fall in February, although the rate of decline did at least continue to slow.

"Encouragingly, lending to small and medium-sized companies rose by £159m in February. And it is likely that lending to larger companies is being limited by them using their cash reserves to finance their activities or looking to alternative sources to raise capital."

He added: " Hopefully, the recent slowing fall in overall lending to businesses and the rise in lending to SMEs in February is a sign the trend is turning.

"As demand for credit does pick up, it is vitally important for healthy and more balanced UK growth that all companies who are in decent shape and who do want to borrow - whether it be to lift investment, explore new markets or generally support their operations - can do so, and at a non-punishing interest rate.

"This applies to all companies, whatever their size."

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